Trinity Ventures Discuses The Cycle of Investment And Predictions For The Next Twelve Months

Passion is an admirable trait, and when you first talk with Ajay Chopra, it’s clear you’re speaking with someone who has a passion to help entrepreneurs achieve as he has. Ajay co-founded Pinnacle Systems, a major innovator in the digital video space, in his living room, and took it public 15 years later. He’s parlayed this success into his role as a general partner at Trinity Ventures, a firm that has invested in companies such as Starbucks, Zulily, New Relic, Fitbit, TubeMogul and Docker. One of the most interesting things about Ajay and Trinity Ventures is that they actually take the time to build long term relationships with the entrepreneurs they invest in. Ajay, who focuses on early stage deals at Trinity, shares a deep empathy for the ups and downs of an entrepreneurial journey.

Can you give a little direction in who Trinity Ventures is and who your LPs are, and what you are trying to do?

People tell us that the most surprising thing about Trinity is how diverse a fund we are, in terms of our investments as well as our people. We are a mixed bunch from all walks of life, but all the partners here are passionate about helping entrepreneurs find success.

Trinity Ventures has actually been around for almost 30 years. We got our start in consumer retail – we invested in Starbucks when they had only 5 stores. We followed that up by investing in Jamba Juice and PF Chang’s. I love that these consumer brands have become a staple in people’s everyday lifestyles. They are a reflection of the types of brands we continue to build. When the internet revolution happened in the 90s, we moved our business almost exclusively to investing in online companies, both consumer and B2B. Companies such as BabyCenter and BlueNile, and more recently, Zulily, Fitbit, New Relic and Docker exhibit our range as investors, but we’ve kept our focus on early stage investing.

I think our style of investing is pretty different. It’s something we’re proud of, so we work hard to develop and maintain that style. It’s very rare for us to meet a company, see a pitch and then make an investment a week or two later. Instead we’re very focused on the quality of our relationships, which takes time to build.

After we invest, we become close confidants to the founders, assisting them in any way we can. Being a CEO is a lonely, isolating job – we try hard to make it an empowering and transformative experience. We also only make about 10 to 12 investments every year and we have eight general partners. This way, we make fewer board commitments and can focus on rolling up our sleeves and helping our portfolio companies in a more meaningful way. That means no one is too busy to help, or hop on the phone, or come by the house for a late-night strategy session or decompression.

We have a deep culture of caring and intellectual honesty in everything we do. I think this is why Trinity has a reputation as the “good guys” in Silicon Valley. I’m pretty happy about that.

We are investing from our eleventh fund and have a very strong group of LPs, and many who have been with us across many, if not most, of our funds.

So if you say you spend a lot of time with companies before investing, how do you find them?

In so many ways. Venture investing is a people business. It’s a high touch business. We spend a lot of time getting to know smart, special people in the tech ecosystem, sometimes even before they know they want to found a company!

Take BulletProof, for example. One of our partners, Gus Tai, has actually known the company’s founder Dave Asprey for 16 years, and that type of relationship informs and drives us. Dave was in our “entrepreneur-in-residence” (EIR) program. This is when we bring great folks into our shop, give them access to our internal workings, deal flow and decision-making process, and then support them as they explore and develop plans for their next adventure. It’s worked well for us and our entrepreneurs like Dave and Kixeye CEO Will Harbin, another one of our EIR success stories.

We get deals from everywhere, but only because we’ve developed the relationships and mutual respect that encourage people to send things our way. We host dinners and events on industry trends and emerging segments, bringing together experts with new entrants. We also try to build relationships with other executives within our portfolio because they could be future entrepreneurs. Our CEOs are tremendous judges of talent, and many people who’ve had a taste of the adventure come to us looking to start their own thing.

If you come to our office, our lobby and conference room walls are adorned with pictures of these very special people! It is also a reminder to us that our success is only as good as the passion, energy and hard work our entrepreneurs put into build enduring companies.

You are not from California originally are you? Also since you are based in Silicon Valley and rely on your tightknit network does it make it difficult for people outside of Silicon Valley to break out of that system, in terms of people such as immigrants and minorities, and eventually get funding?

I am originally from India, though I have been in Silicon Valley for over 30 years now. There are definitely challenges for entrepreneurs who are not from here. There is an ecosystem here and you need to understand it to be successful. However, once you make it in, I would say that success in Silicon Valley is largely based on merit and performance. This is not to say that we don’t have serious issues with a lack of diversity, which is a whole separate issue from not being from Silicon Valley. There is no doubt that women and minorities are under-represented in the founder and VC ecosystem. It’s something we think about a lot and in a very genuine way – in venture investing the way to win is to find someone that everyone else overlooked!

Prior to becoming a VC, in my own entrepreneurial journey, I definitely had struggles of my own when raising capital. You could just feel in some VC meetings there was some discomfort with a CEO of Indian origin. This was some 20 plus years ago, when Indian CEOs didn’t fit the mold of what Silicon Valley was back then. So, I brought along my VP of sales and marketing, who happened to be white, to these meetings. It leaves a bad taste in your mouth, but you do what you have to do to overcome and get the money your company needs. I can tell you one thing: Once my company started to get traction, those doubts disappeared and by the time it became a successful public company, things had definitely changed for the Indian American community. In the past 20 years the Indian American community in Silicon Valley has delivered multiple huge entrepreneurial successes and a large number of founding teams now have founders who are of Indian American background.

As I mentioned earlier, Trinity is probably one of the most diverse firms in Silicon Valley and this is one of the reasons I was so excited to join the firm. We have two partners who are of Chinese ethnicity, two of Indian ethnicity and three female partners. We care deeply about diversity and recently hosted a diversity round table where we invited founders and execs to talk about this very important issue.

Where do you see the cycle of investment, and do you have any predictions on how it will pan out in the next 12 months?

I think we are entering a period of moderation in the VC investment cycle. There is no doubt that things have been overheated in the past few years. In a way, moderation is good. Some of our best investments, including New Relic, TubeMogul and Zulily, were made during the last down cycle in 2008-2009. With the stock market in turmoil and tech IPO environment challenged, hedge funds and investment banks will lose interest in late-stage VC investing. This will moderate late-stage valuations, which should have a ripple effect down to our level. The flow of capital into the venture asset class may also moderate. This is not all bad. I think truly gritty, passionate entrepreneurs with sound business models who want to build enduring companies will be left standing with less competition as marginal players get weeded out.

I also went through the down cycle in 2001-2002, but as an entrepreneur. It was brutal, but it was companies with solid business models who survived, thrived even. My advice to entrepreneurs is to raise as much capital as they can now without worrying too much about valuation. That will give you the runway to wait out a downturn. Then, watch your cash-burn. Sometimes you just have to outlast your competitors to succeed.

Is there anything else you want to add?

Yeah, I think one thing that has been pretty interesting for us to observe is the seed stage investment ecosystem. There is a lot of money going into the ecosystem and there are a lot of angel investors. Since the seed eco system is driven by individual angels and family offices, I think a sustained market downturn may make these individual investors cautious and you may see a slowdown of dollars at that stage. I have mixed feelings about this. On one hand, we as institutional investors benefit from a robust seed eco system because it gives us more opportunities to pick from. On the other hand, the plethora of dollars available in the seed ecosystem has created a lot of noise, and some unrealistic valuation expectations. For every good idea that gets seed funded, there are half a dozen more that may not be the most efficient allocation of capital. It will be very interesting to see what happens to seed stage investing if the market downturn is sustained. Knowing us, we’ll also be focused on what kind of opportunities we’ll find going forward.

Murray Newlands FRSA is an entrepreneur, business advisor and speaker. Newlands is the founder of www.chattypeople.com and chatbot company. Newlands is also an adviser to the Draper Nexus Network of Things Fund that invests in IOT companies. He gives practice advice from the...